Federal Tax Incentives for Small Business

The Small Business Tax Credit

Small businesses with either $1 million or less in revenue or 30 or fewer full-time employees (as defined by the IRS) may take a tax credit of up to $5000 annually for the cost of providing reasonable accommodations to their disabled employees or customers. Qualifying expenses can include the provisions to employees or customers of such things as:

• Sign language interpreters;
• Readers;
• Other methods of making audio-visual materials available to hearing- and visually-impaired individuals;
• The purchase of adaptive equipment;
• The modification of existing equipment; or
• The removal of architectural barriers.

There is no tax credit for the first $250 of expenditures; however, the tax credit is equal to 50% of the 'eligible access expenditures' to a maximum of $10,250. Internal Revenue Code Section 44 and IRS Form 8826.

The Architectural/ Transportation Tax Deduction

This deduction is available to businesses of all sizes and is limited to costs associated with the adaptation of existing facilities. No deduction, however, is available for new construction. The costs of removing architectural or transportation barriers for people with disabilities may be deducted on an annual basis to a maximum of $15,000 of capitalized (or depreciable) expenses. Deductible costs may include the provision of the following:

• Accessible parking spaces, ramps and curb cuts;
• Wheelchair-accessible telephones, water fountains and restrooms;
• 48-inch-wide walkways; and
• Accessible Entrances.

Internal Revenue Code ' 190; IRS Code Reg. 1.190.2; and IRS Publications 535 and 907

The Small Business Tax Credit And the Architectural/ Transportation Tax Deduction

These are not mutually exclusive, so it is possible that your business may be eligible to claim both. If so, the Architectural/Transportation Tax Deduction is equal to the difference between the total qualifying expenditures and the amount of the Small Business Tax Credit claimed. Although these incentives can be claimed annually, excess qualifying expenses cannot be carried over from one year to the next.

The Work Opportunity Credit

This is available to employers who hire certain 'targeted group employees.' As defined by the IRS, eligible targeted group employees include, but are not limited to, vocational rehabilitation agency referrals, victims of Hurricane Katrina, qualifying summer youth employees, and individuals receiving Supplemental Security Income (SSI). The credit cannot exceed $2400 for each qualifying employee who works at least 400 hours during the tax year. A maximum credit of $1200 may be available for each qualifying summer youth employee. Internal Revenue Code ' 51 and IRS Form 5884

Conclusion

Good tax policy promotes social justice and economic fairness. Profitable businesses never ignore business opportunities or potential markets. The federal tax credits and deductions designed to encourage the employment of persons with disabilities and the facilitation of their accessibility to public accommodations are a rare instance where these seemingly divergent interests appear destined to collide. Businesses that are eligible and who do take advantage of these federal tax credits and deductions are not only behaving smartly, but should be lauded for their exemplary corporate citizenship.

John J. Jacko III is a franchise, commercial and business litigator and a member of the Government Contracts Section of the law firm of Buchanan Ingersoll & Rooney PC (www.bipc.com) in its Philadelphia, and Princeton, NJ, offices. He can be reached at [email protected] or 215-665-3923. The author expresses his appreciation to Lauren Brown for her research efforts.

The federal tax code targets small businesses with a social conscience in an effort to encourage compliance with federal disabilities rights laws. There are tax credits and deductions that promote the employment of, and accessibility for, disabled persons. It is through these tax incentives that small businesses are permitted to defray certain costs associated with: 1) the employment of persons with disabilities; and 2) the provision of accessibility to public accommodations for persons with disabilities.

Irrespective of whether a small business is an independent business, a distributorship, or part of a franchise system, it cannot afford to ignore the tangible social and economic benefits these tax incentives provide. In addition to the obvious tax savings, it is simply smart business for small business to pay attention to the needs of the disabled. Estimates reveal that more than 14 million Americans with disabilities are under employed or unemployed and those persons with disabilities have annual aggregate spending of $1 trillion with $220 billion of that amount in discretionary spending. Thus, the disabled community is not only a potential source of dependable and productive labor, but also a sizable potential customer base and marketing opportunity.

Much of the information discussed in this article can be found at the Internal Revenue Service's (IRS) Web site ' www.irs.gov. Although this article is designed to provide your client's small business with general information about various tax incentives, it is not legal advice. Check with an accountant or tax adviser to find out whether your client's small business is eligible to take advantage of these incentives and be sure to inquire about whether there are similar state and local tax incentives for which your client's small business may also be eligible.

The Small Business Tax Credit

Small businesses with either $1 million or less in revenue or 30 or fewer full-time employees (as defined by the IRS) may take a tax credit of up to $5000 annually for the cost of providing reasonable accommodations to their disabled employees or customers. Qualifying expenses can include the provisions to employees or customers of such things as:

• Sign language interpreters;
• Readers;
• Other methods of making audio-visual materials available to hearing- and visually-impaired individuals;
• The purchase of adaptive equipment;
• The modification of existing equipment; or
• The removal of architectural barriers.

There is no tax credit for the first $250 of expenditures; however, the tax credit is equal to 50% of the 'eligible access expenditures' to a maximum of $10,250. Internal Revenue Code Section 44 and IRS Form 8826.

The Architectural/ Transportation Tax Deduction

This deduction is available to businesses of all sizes and is limited to costs associated with the adaptation of existing facilities. No deduction, however, is available for new construction. The costs of removing architectural or transportation barriers for people with disabilities may be deducted on an annual basis to a maximum of $15,000 of capitalized (or depreciable) expenses. Deductible costs may include the provision of the following:

• Accessible parking spaces, ramps and curb cuts;
• Wheelchair-accessible telephones, water fountains and restrooms;
• 48-inch-wide walkways; and
• Accessible Entrances.

Internal Revenue Code ' 190; IRS Code Reg. 1.190.2; and IRS Publications 535 and 907

The Small Business Tax Credit And the Architectural/ Transportation Tax Deduction

These are not mutually exclusive, so it is possible that your business may be eligible to claim both. If so, the Architectural/Transportation Tax Deduction is equal to the difference between the total qualifying expenditures and the amount of the Small Business Tax Credit claimed. Although these incentives can be claimed annually, excess qualifying expenses cannot be carried over from one year to the next.

The Work Opportunity Credit

This is available to employers who hire certain 'targeted group employees.' As defined by the IRS, eligible targeted group employees include, but are not limited to, vocational rehabilitation agency referrals, victims of Hurricane Katrina, qualifying summer youth employees, and individuals receiving Supplemental Security Income (SSI). The credit cannot exceed $2400 for each qualifying employee who works at least 400 hours during the tax year. A maximum credit of $1200 may be available for each qualifying summer youth employee. Internal Revenue Code ' 51 and IRS Form 5884

Conclusion

Good tax policy promotes social justice and economic fairness. Profitable businesses never ignore business opportunities or potential markets. The federal tax credits and deductions designed to encourage the employment of persons with disabilities and the facilitation of their accessibility to public accommodations are a rare instance where these seemingly divergent interests appear destined to collide. Businesses that are eligible and who do take advantage of these federal tax credits and deductions are not only behaving smartly, but should be lauded for their exemplary corporate citizenship.

John J. Jacko III is a franchise, commercial and business litigator and a member of the Government Contracts Section of the law firm of Buchanan Ingersoll & Rooney PC (www.bipc.com) in its Philadelphia, and Princeton, NJ, offices. He can be reached at [email protected] or 215-665-3923. The author expresses his appreciation to Lauren Brown for her research efforts.